Yes, size matters. Yes, small size can be offset by other factors. I could be wrong about this next bit, but I believe that each factor does not scale linearly. There are diminishing returns. So you have to have a lot more beauty or value to make up for a small size.
Not all furniture in a room decreases size. Chairs don’t count. I’m not sure about nightstands. Take a look at the size value before and after placing things to confirm.
I generally go with 5x5 rooms with large sculptures in each corner. Since chairs don’t take up room, throwing in some high quality chairs can be a good way to get that little bit extra you need to bump the room up to the next level of impressiveness.